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Penson Worldwide, Inc. (NASDAQ: PNSN) reported today that it is actively engaged in advanced discussions regarding strategic transactions and will provide further information when appropriate. The Company also reported results from continuing operations for the first quarter ended March 31, 2012 and the filing of its related Form 10-Q.
Penson noted that it has not reached a final agreement with its note holders to exchange their notes for new securities under the proposed exchange offer previously announced, but is continuing with its efforts to restructure its balance sheet. Meanwhile, Penson announced that it made its scheduled interest payment today of $12.5 million on its 12.5% Senior Secured Second Lien Notes due 2017.
1Q12 Results from Continuing Operations
Continuing operations include the Company’s US subsidiary, Penson Financial Services, Inc. (PFSI), including its Penson Futures division, and Nexa Technologies, Inc. The Company’s Canadian subsidiary, Penson Financial Services Canada, Inc., and UK subsidiary, Penson Financial Services Ltd, are treated as discontinued operations and are excluded.
Net revenues were $29.3 million, which included in “other revenue” a non-cash $8.8 million write-down of Retama Development Corporation (RDC) related assets. As previously announced, subsequent to the quarter Penson sold substantially all of its RDC related assets. The Company recorded a write-down to fair value of $8.8 million as of March 31, 2012 in respect of these assets and will record a further write-down of $6.3 million that will be reflected in the second quarter of 2012 in respect of the sale. Excluding the first quarter write-down, net revenues from continuing operations were $38.1 million as compared to $42.7 million for the fourth quarter ended December 31, 2011 (4Q11).
Expenses were $72.3 million, which included $7.9 million in non-recurring items, primarily related to Penson’s strategic initiatives. Excluding non-recurring items from both periods, expenses from continuing operations were $64.4 million as compared to $66.1 million in 4Q11, reflecting progress with the Company’s cost savings plan.
Pre-tax operating loss was $43.0 million. Excluding the above mentioned write-down and non-recurring expense items from both periods, pre-tax operating loss from continuing operations was $26.3 million compared to a loss of $23.4 million in 4Q11. On the same basis, and excluding non-cash items for both periods, pre-tax operating loss was $20.3 million as compared to a loss of $14.3 million in 4Q11.
Net loss was $43.1 million, or ($1.54) per share, compared to a net loss of $184.7 million, or ($6.68) per share, in 4Q11, which included a $137.4 million non-cash goodwill impairment charge. Excluding the previously noted write-down and non-recurring expense items from both periods, net loss from operations was $26.4 million, or ($0.94) per share, compared to a net loss of $25.6 million, or ($0.93) per share, in 4Q11.
1Q12 Additional Information (Continuing Operations)
Non-interest revenues, excluding the above mentioned RDC write-down, were $30.3 million compared to $32.9 million in 4Q11. This reflects the continued slowdown in trading volumes, which saw average daily volumes for the industry decline approximately 8% in equities compared to 4Q11.
Net interest revenues were $7.8 million compared to $9.8 million in 4Q11. The change reflected (i) lower yield on excess cash balances in FDIC insured bank accounts, where virtually all customer segregated balances are held, and (ii) lower volumes in securities lending.
Regulatory capital: At March 31, 2012, PFSI’s net capital totaled $119.1 million, approximately four times the minimum regulatory requirement of $30.9 million.
Correspondent count: At March 31, 2012, PFSI had 305 revenue-generating correspondents, comprised of 237 in securities clearing and 68 in futures operations. Due principally to its technology conversion, which was completed during the quarter, PFSI refrained from on boarding new correspondents. At March 31, 2012, Penson had a signed “pipeline” of 35 new correspondents.
Non-GAAP Financial Measures
The Company uses certain non-GAAP measures of financial performance to supplement the unaudited financial statements presented in accordance with GAAP. The Company presents non-GAAP measures when we believe that the additional information is useful and meaningful to investors. Non-GAAP measures do not have any standardized meaning and are therefore unlikely to be comparable to similar measures presented by other companies. The presentation of non-GAAP measures is not intended to be a substitute for, and should not be considered in isolation from, the financial measures reported in accordance with GAAP.